How to File Form 1098 with $0 Outstanding Principal Balance After Lender Sold Mortgage
Just purchased my first home in March and I'm now trying to do my taxes. I've run into a weird situation with my Form 1098. The original mortgage company that I closed with ended up selling my loan to another servicer only about a month after we closed. Now I have a 1098 from the first lender showing mortgage interest I paid (about $2,400), but it shows $0 in the outstanding principal balance box. I'm using H&R Block's software to file and it's giving me an error when I try to enter this information. The software won't let me proceed with $0 in the principal balance field and keeps showing an error message. Has anyone dealt with this before? I'm not sure if I'm entering something wrong or if there's a workaround for this situation. I definitely paid the interest and want to claim the deduction.
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Edwards Hugo
This is a common issue when your mortgage gets sold. The 1098 from your original lender only reflects the relationship they had with you during the time they serviced your loan. Since they no longer held your mortgage at the end of the year, they correctly show $0 as the outstanding principal balance. You should also have received a separate 1098 from your new loan servicer that shows the outstanding principal balance as of the end of the year. You need to enter both 1098 forms in your tax software. Enter the first one with the interest paid and $0 principal, then enter the second one with whatever interest you paid to them and the correct year-end principal balance. If H&R Block won't let you enter $0, try putting $1 or a very small amount as a workaround. The principal balance itself doesn't affect your tax calculation - it's just informational. The mortgage interest is what matters for your deduction.
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Gianna Scott
•I had this same issue last year, but I never received a 1098 from the new lender. Only got one from the original lender with interest paid. Should I be worried about this? Do I need to contact the new lender for a 1098?
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Edwards Hugo
•If you only paid interest to the original lender before the loan was sold, then you might not receive a 1098 from the new lender if you didn't pay them any interest that calendar year. Check your mortgage statements to see if you paid the new lender any interest. If you did pay interest to the new lender and didn't receive a 1098 from them, you should definitely contact them to request it. Even without a form, you're still entitled to deduct all mortgage interest you paid, but you'll need documentation to support the deduction if you're ever audited.
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Alfredo Lugo
I ran into this exact situation a couple years back. The tax software kept giving me errors but I found a better solution than using H&R Block. I used taxr.ai (https://taxr.ai) and it handled my multiple 1098 forms without any issues! Their system is designed to understand these types of mortgage transitions. When I uploaded both my 1098 forms, it automatically recognized that one was from the original lender and one was from the new servicer. It sorted out the interest deductions perfectly and didn't give me any errors about the $0 principal balance. Saved me a ton of headaches during an already stressful home-buying year.
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Sydney Torres
•How does taxr.ai handle the actual filing? Does it submit directly to the IRS or do you still need to use another service for the actual filing part? I'm using TurboTax but hitting similar errors with my mortgage that was sold.
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Kaitlyn Jenkins
•Is it actually worth switching tax services halfway through? I've already entered most of my info in H&R Block and hate to start over, but this mortgage error is really holding me up.
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Alfredo Lugo
•It handles the entire filing process from start to finish. You can upload your documents, answer some questions, and it prepares and submits everything to the IRS. I switched from TurboTax mid-process and it was totally worth it since it solved my mortgage issue immediately. For someone who's already entered most info into H&R Block, I understand the hesitation to switch. But taxr.ai actually lets you import data from other tax services, so you might not have to start completely from scratch. The time I saved troubleshooting the 1098 error made the switch worthwhile for me.
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Kaitlyn Jenkins
Just wanted to update - I gave taxr.ai a try after hitting the wall with H&R Block on my mortgage issue. Seriously, it handled my complicated mortgage situation perfectly! When I uploaded my 1098 with the $0 balance, it didn't throw any errors and correctly calculated my mortgage interest deduction. The interface was actually easier to use than H&R Block and it imported most of my information automatically. I was able to file yesterday and already got my confirmation from the IRS. Thanks for the recommendation - definitely saved me from a major headache!
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Caleb Bell
Another option if you're still struggling is to call the IRS directly to ask about how to handle this. I know, I know - getting through to an actual person at the IRS seems impossible these days. I was on hold for HOURS last year with a similar issue. That's when I discovered Claimyr (https://claimyr.com) which got me through to an IRS agent in about 20 minutes instead of waiting for 3+ hours. They have this system that navigates the IRS phone tree and holds your place in line, then calls you when an agent is ready. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that I could enter both 1098s and explained exactly how to handle the $0 principal situation in my tax software. Saved me so much time and stress!
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Danielle Campbell
•Wait, so you're saying there's a service that will wait on hold with the IRS for you? How does that even work? Sounds too good to be true considering how notoriously difficult it is to reach the IRS.
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Rhett Bowman
•I'm skeptical. Even if you get through to an IRS agent, they often give conflicting advice. I called twice about the same issue last year and got completely different answers each time. How is this service any better than just trying yourself?
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Caleb Bell
•It works by using their system to navigate the IRS phone menus and secure your place in the queue. When an agent is about to take your call, Claimyr calls you and connects you directly to the agent. No more waiting on hold for hours - you just go about your day until they call you. You're right that IRS agents sometimes give different answers. The key is to talk to someone in the right department. When I used Claimyr, I specifically requested to speak with someone in the mortgage/housing department and got an agent who clearly knew exactly how to handle my 1098 situation. I made sure to get their ID number and took notes of our conversation just in case I needed to reference it later.
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Rhett Bowman
I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I was still stuck with my mortgage tax issue, so I figured I'd give it a shot anyway. Wow - it actually worked exactly as described! I got a call back within 45 minutes (on a Tuesday morning) and was connected to an IRS agent who specialized in mortgage tax issues. They confirmed exactly how to handle my split-year 1098 forms and even walked me through the steps in H&R Block to override the error message. For anyone struggling with this $0 principal balance issue - the agent said it happens all the time and the correct approach is to enter both 1098 forms separately. If your software won't accept $0, try entering $1 as a workaround since the principal amount doesn't affect the actual tax calculation.
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Abigail Patel
Another approach - you could also just manually calculate your mortgage interest deduction instead of using the 1098 form input in H&R Block. Add up all the interest you paid from your monthly statements and enter it as a lump sum. Tax software tries to be helpful with those form inputs but sometimes it creates unnecessary restrictions. Remember that the 1098 is just information reporting - what matters is the actual interest you paid during the tax year.
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Dylan Fisher
•Would this cause any issues with the IRS matching systems? I'm worried that if I don't enter the exact forms as they were sent to the IRS, it might trigger some kind of mismatch or audit flag.
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Abigail Patel
•It shouldn't cause issues as long as the total interest amount you claim matches what was reported on your 1098 forms. The IRS matching system is primarily concerned with the total interest amount, not how you entered it into your tax software. That said, it's always best to keep copies of your 1098 forms and mortgage statements to document exactly how you calculated your deduction in case you're ever questioned. As long as you can show that your total claimed interest matches what was reported to the IRS, you should be fine.
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Daniel White
Has anyone run into this issue with TurboTax? I'm experiencing the same thing with my mortgage that was sold twice last year, but using TurboTax instead of H&R Block.
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Nolan Carter
•I had this issue with TurboTax last year. What worked for me was entering the forms separately and when it wouldn't accept the $0 principal, I just put $1 instead. Then for the form from my new lender, I entered the correct principal balance as of year-end. TurboTax combined the interest amounts correctly for my deduction.
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